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Decent operational performance amid pandemic…..

About the stock:

Larsen & Toubro (L&T) is India’s largest engineering & construction (E&C) company with interest in EPC projects, Hi-tech manufacturing and services.

* It primarily operates in infrastructure, heavy engineering, defence engineering, power, hydrocarbon, services business segments

* Infrastructure segment contributes ~45% to consolidated revenue followed by services (~30%).

Q1FY22 Results:

L&T reported decent Q1FY22 results.

* Adjusted standalone revenue up 60.8% YoY to | 13109 crore on low base

* Standalone EBITDA up 76.4% YoY to | 1026 crore with margins improving 70 bps to 7.8% on a YoY basis

* Consequently, standalone PAT at | 750.1 crore (up 166.3% YoY)

* Order inflows came in at | 26557 crore, up 13% YoY

What should investors do?

L&T’s strong order book of | 323721 crore suggest good revenue visibility in coming years.

* We maintain our BUY rating on the stock

Target Price and Valuation: We value L&T at | 1870 on SoTP basis

Key triggers for future price performance:

* Low to mid teen revenue and order inflow growth in FY22E amid pandemic

* Net working capital to sale expected to remain stable at ~22.3% for FY22E

* Focus on asset monetisation to further strengthen the balance sheet and improve return ratios

* Strong b/s, controlled working capital, & strong cash generation

Alternate Stock Idea:

Apart from L&T, in our coverage we also like Siemens Ltd.

* Further penetration of valued added automation and digitisation products & services across segments to drive margins, long term growth

* BUY with target price of | 2390

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